In The Spotlight: Choose wisely when investing money

Saturday

Sep 27, 2008 at 12:01 AMSep 27, 2008 at 2:18 PM

These are unprecedented times for the U.S. economy and our financial institutions. Almost daily there is news about massive losses at large national and regional banks caused by poor lending practices, such as subprime and other exotic mortgages. Less well-known are the implications of these losses.

These are unprecedented times for the U.S. economy and our financial institutions. Almost daily there is news about massive losses at large national and regional banks caused by poor lending practices, such as subprime and other exotic mortgages. Less well-known are the implications of these losses.

Because Wall Street has lost confidence in many banks, these institutions are unable to find capital to sustain themselves. As a result, they are forced to reduce their assets, repaying hundreds of billions of dollars in debt to Wall Street to ensure they have adequate capital and meet regulatory requirements. Many of these same large banks have gobbled up community banks with the promise of better service for customers and higher returns to stockholders. These banks have failed to fulfill that promise.

The result on Main Street, beyond massive stockholder losses, is a "credit crunch," as troubled banks are forced to pull back from making credit available to consumers and businesses. Stories abound of banks curtailing loans to purchase homes and cars, pay for college educations, and invest in new and expanded business ventures, even to borrowers with good credit histories and proven repayment ability. This further weakens our economy.

More than ever, consumers' choices on where they do business matter - to their own financial well-being and to the sustained economic vitality of their communities. Are deposits with troubled banks safe? Yes, assuming they are within the limits of deposit insurance backed by the U.S. government. But consumers need to know that a significant portion of deposits at troubled banks is going to repay Wall Street debt, not being invested in their local communities.

There is an alternative for consumers who want safety, value, a focus on service, and a commitment to enhancing their community's well-being. Credit unions are financial cooperatives owned and governed by their members. They remain committed to meeting the financial needs of consumers and small business owners.

Credit unions have always relied upon member deposits, rather than Wall Street, for their funds to make loans. Credit union deposits are insured by the NCUA and backed by the full faith and credit of the U.S. government up to the same limits as banks. However, unlike troubled banks, credit unions are still making loans available to their members for provident purposes.

Hats off to credit unions for their continued sound business and financial practices!

Mark Spenny

President/CEO, CEFCU

Peoria

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